2018 (5) TMI 277 - AT - Income Tax

Method of accounting followed - income recognization - accrual of income - Held that - Upon perusal of order of this Tribunal for AY 2009-10 2017 (4) TMI 764 - ITAT MUMBAI representing various invoices raised by the assessee on his clients in the month of April 2009. These receipts were accounted for in the relevant previous years of A.Y.2010-11, meaning thereby the income has already accounted for in the subsequent assessment year. The claim of the assessee is that the Revenue is recognized only at a stage where there is certainty of realization of income. It is noted that there is no undue benefit derived by the assessee in accounting for certain invoices in subsequent year. Our view finds support from the decision from Hon ble Apex Court in CIT vs. Excel Industries Ltd. 2013 (10) TMI 324 - SUPREME COURT The tax rate in both the years is same - Thus adjustment of ₹ 1.01 crores made by Ld. AO by enhancing the returned loss is not warranted and therefore, the total loss of the assessee stands determined at Rs.(-)9,79,91,325/-.- Decided against revenue

Summary

Issues:
Appeal by revenue against CIT(A)'s order for AY 2010-11 regarding accounting method and tax liability deferment.

Analysis:
The revenue appealed against the CIT(A)'s order for AY 2010-11, challenging the observation that the assessee's accounting method did not intend to defer tax liabilities. The revenue contended that revenue should be recognized as per the contract terms. The assessee, a resident corporate assessee providing corporate finance services, was assessed at a loss of ?10.81 crores after adjustments. The adjustment of professional income amounting to ?1.01 crores was the subject matter of the appeal.

During assessment, the AO noted that professional fees billed by the assessee in April 2010 related to services rendered in the previous financial year. The AO adjusted the income, enhancing the loss by ?1.01 crores. The assessee challenged this before the CIT(A), who ruled in favor of the assessee, citing previous years' orders. The revenue further appealed to the ITAT.

The AR referred to a previous Tribunal order in the assessee's favor for AY 2009-10, which the DR agreed to. The ITAT reviewed the AY 2009-10 order where it was noted that income had been accounted for in subsequent years, and there was no undue benefit to the assessee. Citing a Supreme Court decision, the ITAT upheld the CIT(A)'s decision, dismissing the revenue's appeals.

Consequently, the revenue's appeal was dismissed, and the assessee's cross objections were deemed infructuous. The adjustment made by the AO was deemed unwarranted, and the total loss of the assessee was determined at ?(-)9,79,91,325. The ITAT pronounced the order on 14th March 2018, following the previous judgment in the assessee's favor.